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Rating Action:

Moody's America Latina downgrades the ratings of the Brazilian states of Parana, Maranhao, and the Municipality of Rio de Janeiro

 The document has been translated in other languages

24 Feb 2016

Sao Paulo, February 24, 2016 -- Moody's America Latina today downgraded the ratings of the Brazilian states of Parana and Maranhao as well as the ratings of the Municipality of Rio de Janeiro. The ratings impacted are as follows :

State of Parana. Rating downgraded to Ba3 (Global Scale, Local and Foreign Currency) from Ba1 and to A2.br (National Scale, Local and Foreign Currency) from Aa2.br, with a stable outlook

State of Maranhao. Rating downgraded to Ba3 (Global Scale, Local and Foreign Currency) from Ba2 and to A2.br (National Scale, Local Currency) from Aa3.br, with a negative outlook

Municipality of Rio de Janeiro. Rating downgraded to Ba2 (Global Scale) from Baa3, and to Aa2.br (National Scale, Local Currency) from Aaa.br, with a negative outlook

Today's action follows Moody's February 24, 2016 rating action in which Brazil's government bond rating was downgraded to Ba2 from Baa3. (For full details, please see "Moody's downgrades Brazil's issuer and bond ratings to Ba2 with a negative outlook" at link https://www.moodys.com/research/Moodys-downgrades-Brazils-issuer-and-bond-ratings-to-Ba2-with--PR_342928 ). Today's action also concludes the ratings review of these three issuers which was initiated on December 10, 2015

RATINGS RATIONALE

The rating downgrades mainly reflect the close macroeconomic and institutional linkages between state and municipal governments to the federal government. In Moody's view, the on-going deterioration of Brazil's economy and of the sovereign's fiscal position have a direct impact on the operating environment of Brazilian states and municipalities.

The weaker economy has reduced tax revenues and increased challenges facing local and regional governments to adequately reduce expenditures. This has resulted in a deterioration of the fiscal position of Brazilian states and municipalities. Moody's expects that the weakening macroeconomic environment will continue to exert pressure on the credit quality of Brazilian states and municipalities in the near future.

The stable outlook on the State of Parana reflects Moody's view that the state's resilient operating performance and moderate debt levels will help the state withstand a further deterioration of Brazil's economy.

The negative outlook on the State of Maranhao reflects the agency's expectations that the state's limited economic base makes it relatively vulnerable to the impact of a further deterioration in Brazil's economy.

The negative outlook on the Municipality of Rio de Janeiro is in line with the negative outlook of Brazil's sovereign rating and reflects Moody's view that the municipality cannot be rated higher than the sovereign government.

Moody's continues to see Brazil's institutional framework as supportive to ratings of states and municipalities relative to international peers. While the agency views recent emergency measures to support the liquidity of some regional and local governments - such as the transfer of private judicial deposits - as a stretch to the boundaries of Brazil's Fiscal Responsibility Law, it sees the measures proposed last week by the federal government to introduce further cost controls in exchange for an extension of states' debt maturity as a sign of its commitment to greater financial supervision and fiscal discipline.

WHAT COULD CHANGE THE RATING UP/DOWN

Given the expectations of further weakening of the operating environment, Moody's does not expect any upward pressure in the near term. Nonetheless, an upgrade of Brazil´s sovereign bond rating and/or a sustained improvement in key financial metrics could lead to an upgrade of these issuers. Conversely, a downgrade of the sovereign bond rating, and/or a deterioration in the key financial metrics of each of these states and municipality could exert downward pressure on the assigned ratings.

POTENTIAL MAPPING RECALIBRATION FROM GLOBAL SCALE TO NATIONAL SCALE RATINGS

With the recent downgrade of the government of Brazil on the global rating scale and other issuers whose risk profiles are affected by related credit considerations, the distribution of national scale ratings (NSRs) among issuers in Brazil has become compressed, particularly at the Aa2.br level. As a result, the current mapping of global scale ratings to national scale ratings may no longer be adequately serving one of its intended purposes, which is to provide greater credit differentiation among issuers in Brazil than is possible on the global rating scale. However, if Moody's NSR methodology is revised as proposed in the Request for Comment (RFC) entitled "Mapping National Scale Ratings from Global Scale Ratings" published on January 20, the resulting new Brazilian scale would likely imply that many Brazil global scale ratings would be remapped to higher ratings on the national scale.

While the RFC included a new proposed national scale map for Brazil, given the aforementioned ratings changes, the new map design for Brazil will likely differ from the specific map proposal included in the RFC. In addition to the proposed Brazilian map, the RFC comprised a proposed update to our methodology for mapping national scale ratings from global scale ratings, including guidelines for the design of new national scale maps and changes to existing maps, as well as proposed new national scale maps for each of the other countries in which we currently offer NSRs. The comment period for this RFC closed on February 22.

The principal methodology used in these ratings was Regional and Local Governments published in January 2013. Please see the Ratings Methodologies page on www.moodys.com.br for a copy of this methodology.

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in June 2014 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings".

REGULATORY DISCLOSURES

Information sources used to prepare the rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Please see the ratings disclosure page on www.moodys.com.br for general disclosure on potential conflicts of interests.

Moody's America Latina Ltda. may have provided Other Permissible Service(s) to the rated entity or its related third parties within the 12 months preceding the credit rating action. Please see the special report "Services provided to entities rated by Moody's America Latina Ltda." on our website www.moodys.com.br for further information.

Entities rated by Moody's America Latina Ltda. (and the rated entities' related parties) may also receive products/services provided by parties related to Moody's America Latina Ltda. engaging in credit ratings activities. Please go to www.moodys.com.br for a list of entities receiving products/services from these related entities and the products/services received. This list is updated on a quarterly basis.

The date of the last Credit Rating Action for State of Maranhao was 10/12/2015

The date of the last Credit Rating Action for State of Parana was 10/12/2015

The date of the last Credit Rating Action for City of Rio de Janiero was 10/12/2015

Moody's ratings are constantly monitored, unless designated as point-in-time ratings in the initial press release. All Moody's ratings are reviewed at least once during every 12-month period.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.br.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Please see ratings tab on the issuer/entity page on www.moodys.com.br for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com.br for further information.

Please see Moody's Rating Symbols and Definitions on the Ratings Definitions page on www.moodys.com.br for further information on the meaning of each rating category and the definition of default and recovery.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com.br for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com.br for additional regulatory disclosures for each credit rating.

Paco Debonnaire
Analyst
Sub-Sovereign Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

David Rubinoff
MD - Sub-Sovereigns
Sub-Sovereign Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

Moody's America Latina downgrades the ratings of the Brazilian states of Parana, Maranhao, and the Municipality of Rio de Janeiro
No Related Data.
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